September 7, 2010

Actually, it’s not entirely a new idea. Obama has been talking about this since the campaign. And while Obama is now proposing to ramp up infrastructure spending quickly, in order to boost the (very) weak economic recovery, the sum probably won’t make a huge difference in employment. Economist and blogger Brad Delong figures that if the proposal were to become law soon (a big assumption) and inject $50 billion of public works spending in the first year (also a big assumption), it would reduce unemployment by a modest 0.3 percentage points.

Still, that’d be about 465,000 jobs, at least on the back of my envelope. That's not trivial, particularly to the 465,000 people who hold them.

And the idea seems like a pretty good one, purely on the merits. The basic concept is to create an “infrastructure bank,” which would dole out grants and loans to worthy projects. Right now, Congress makes a lot of those investments directly, frequently through earmark appropriations that have a lot to do with the impact on particular congressional districts and not so much to do with the merits of the particular project. Although Obama did not offer a lot of specifics on this particular version of his proposal, infrastructure banks typically have specified criteria by which they make funding decisions and quasi-independent groups of experts who make the decisions. (More on that soon.)

The concept has been circulating among intellectuals, from center to left, for years. The most serious proposal now before Congress, as far as I know, as a bill from Rep. Rosa DeLauro, Democrat of Connecticut. But the $50 billion in quick spending is new, and a clear attempt to create more jobs than the recovery is now creating, as a senior administration official acknowledged in a conference call. “Obviously the front-loaded portion of it, the idea that we would do $50 billion up front as part of a six-year plan, is motivated by the current economic situation.” To pay for the plan, Obama has proposed to find offsets, including tax loopholes that benefit oil and gas companies.

House Minority Leader John Boehner dismissed the proposal as “more of the same failed ‘stimulus’ spending,” saying that “If we’ve learned anything from the past 18 months, it’s that we can’t spend our way to prosperity.”

For what it’s worth, most economists believe the stimulus did create jobs, if not enough to offset job losses from the financial crisis and recession. Models that the Congressional Budget Office and other top economists use suggest infrastructure spending is among the most economically efficient ways to create jobs; a mountain of evidence suggests our transportation infrastructure is in desperate need of repair.

There are also enough tax loopholes to cover the full cost of the program and, by the way, this proposal could reduce the incidence of earmark spending--something, as it happens, that most Republicans in Congress say they oppose.

Sadly, the chances that Boehner and allies would debate this idea seriously were about the same that they would vote for it: Zero.

Update: I changed "would likely" reduce incidence of earmark spending to "could," since it obviously depends a lot on both the design of the infrastructure bank and how future Congresses react to it.